Dowling v. Pension Plan for Salaried Emps. of Union Pac. Corp., 16-1977.

• Decision Date: 15 September 2017
• Docket Number: No. 16-1977.,16-1977.
• Citation: 871 F.3d 239
• Parties: John E. DOWLING, Appellant v. PENSION PLAN FOR SALARIED EMPLOYEES OF UNION PACIFIC CORPORATION AND AFFILIATES; Roy Schroer, Named Fiduciary–Plan Administration of the Pension Plan For Salaried Employees of Union Pacific Corporation and Its Affiliates; Edwin A. Willis, Delegate of the Named Fiduciary–Plan Administration of the Pension Plan For Salaried Employees of Union Pacific Corporation and Affiliates; The Northern Trust Co in Its Capacity as Trustee of the Pension Plan For Salaried Employees of Union Pacific Corp and Affiliates; Roy Schroer, Administrator of the Supplemental Pension Plan For Officers and Managers of Union Pacific Corporation and Affiliates; Edwin Willis, Delegate of the Administrator of the Supplemental Pension Plan For Officers and Managers of Union Pacific Corporation and Affiliates; Union Pacific Corporation; Supplemental Pension Plan For Officers and Managers of Union Pacific Corporation and Its Affiliates
• Court: U.S. Court of Appeals — Third Circuit

871 F.3d 239

John E. DOWLING, Appellant

v.PENSION PLAN FOR SALARIED EMPLOYEES OF UNION PACIFIC CORPORATION AND AFFILIATES; Roy Schroer, Named Fiduciary–Plan Administration of the Pension Plan For Salaried Employees of Union Pacific Corporation and Its Affiliates; Edwin A. Willis, Delegate of the Named Fiduciary–Plan Administration of the Pension Plan For Salaried Employees of Union Pacific Corporation and Affiliates; The Northern Trust Co in Its Capacity as Trustee of the Pension Plan For Salaried Employees of Union Pacific Corp and Affiliates; Roy Schroer, Administrator of the Supplemental Pension Plan For Officers and Managers of Union Pacific Corporation and Affiliates; Edwin Willis, Delegate of the Administrator of the Supplemental Pension Plan For Officers and Managers of Union Pacific Corporation and Affiliates; Union Pacific Corporation; Supplemental Pension Plan For Officers and Managers of Union Pacific Corporation and Its Affiliates

No. 16-1977.

United States Court of Appeals, Third Circuit.

Argued January 18, 2017

Opinion Filed: September 15, 2017

[ARGUED] Oldrich Foucek, IIIKelly S. Watkins Norris McLaughlin & Marcus 515 West Hamilton Street Suite 502 Allentown, PA 18101 Counsel for Appellant

[ARGUED] Christopher T. CognatoDavid S. Fryman Ballard Spahr 1735 Market Street 51st Floor Philadelphia, PA 19103 Counsel for Appellees

Before: AMBRO, HARDIMAN, and VANASKIE, Circuit Judges

OPINION OF THE COURT

VANASKIE, Circuit Judge.

Retirement plans can be complex documents that span hundreds of pages with numerous peculiarities. But when do a plan's terms move from merely complex to ambiguous? That is the question in this pension plan dispute. Former Union Pacific employee John Dowling is covered by a 277–page retirement plan composed of introductory material, 19 articles of content, and various appendices—none of which explicitly address Dowling's precise situation. When Dowling retired, the plan administrator interpreted the plan to provide Dowling with a lower monthly payment than he expected. Dowling challenged the administrator's decision as contradicting the plan's plain language, but the District Court found the plan ambiguous and the administrator's interpretation reasonable. Dowling appealed, and the dispute now centers on three issues: the text of the plan, our standard of review, and whether a conflict of interest alters the outcome. Because the plan's terminology, silence, and structure render it ambiguous, the plan accords the plan administrator discretion to interpret ambiguous plan terms, and the mere existence of a conflict of interest is alone insufficient to raise skepticism of the plan administrator's decision, we will grant deference to the plan administrator and affirm.

I.

Dowling was hired at age 41 by Appellee Union Pacific Corporation in 1988, where he served in the high-ranking position of Vice President for Corporate Development. Just seven years later, Dowling's life was dealt a severe blow when he was diagnosed with multiple sclerosis.

By 1997, Union Pacific had determined that Dowling possessed a "Total Disability," because he was "unable to work at any job." (App. 153, 520.) That decision made Dowling eligible for long-term disability benefits that he could receive for the duration of his disability or until he reached age 65 in 2012, whichever came first.

When Dowling turned 65 in 2012, the long-term disability benefits stopped, and he began to draw on his Union Pacific retirement. His credited years of service for purposes of calculating his pension benefit included the 15 years he received disability benefits. Union Pacific's plan administrator interpreted the plan to require that Dowling's pension be calculated in accordance with what the administrator saw as applicable to disabled plan participants: Instead of calculating Dowling's pension based on Dowling's last ten years of actual work—ending in 1997—the administrator operated as if Dowling had worked and been paid his final base salary—$208,000 per year— for his credited years of service, up until his retirement in 2012, even though Dowling had not in reality worked during that period. Under the administrator's interpretation, Dowling was entitled to a monthly pension payment of $7,006.96.

Dowling objected to the calculation and filed a claim via the plan's administrative procedures, asking for a benefit increase. He argued the plan required his pension payment to be based on his ten years of income prior to 1997, when he became disabled and stopped working, and not a hypothetical income stream for the ten years prior to his 2012 formal retirement date. If Dowling's theory about the 1987 to 1997 window were correct, then Union Pacific would owe Dowling a much higher monthly payment because during that earlier period Dowling received significant performance bonuses on top of his base salary.

Dowling lost his administrative claim, exhausted his administrative remedies, and filed this action against Union Pacific and the other Appellees in the Eastern District of Pennsylvania. Dowling sought a declaratory judgment stating his rights and liabilities, pursuant to ERISA. 29 U.S.C. § 1132(a)(1)(B). The District Court granted summary judgment to Union Pacific, holding that the plan administrator's interpretation of the plan was not unreasonable, and Dowling appealed.

II.

Dowling's retirement is governed by Union Pacific's "Pension Plan for Salaried Employees." The plan is a substantial legal document: it opens with seven pages of preliminary information, then continues across 133 pages of content divided into 19 articles. At the back are 137 pages of appendices, schedules, exhibits, and tables.

Out of all this material, two key factors largely determine the amount of a plan participant's pension payment: compensation and service. The compensation factor is called "Final Average Compensation" and is defined as a plan participant's average monthly salary during his or her three highest-earning years—the "high-three"—during the ten years "immediately preceding ... the last date on which [the plan participant] is a Covered Employee." (Plan § 2.35, App. 144.¹ ) The service factor is the participant's "Credited Service," which refers to the amount of time a plan participant spent as a "Covered Employee." Thus, for the run-of-the-mill plan participant, pension calculation is easy: it is based on the years the individual spent at work, and his average paycheck during his three highest-earning years of his final ten years of employment.

But the plan treats a disabled participant differently. For Credited Service, instead of stopping the accumulation of service when the disabled participant stops work, as is the case with the typical participant, the plan permits disabled participants to accumulate service during their pre-retirement, post-disability years, "as if" they remained Covered Employees until their date of retirement—even though they may have stopped working years earlier. (Plan §§ 4.02(c)(2), 6.05, App. 157, 178; see also Plan § 2.40(a)(5), App. 148 (noting the "Hours of Service" credited to not-working disabled participants).² )

For Final Average Compensation, the plan's application to disabled participants is less clear, with the confusion largely centering on the plan's use of the term "absence." During an "absence" from work, a plan participant is "deemed to have received" for the duration of their absence "Compensation at the base pay rate in effect" prior to the absence. (Plan § 2.18(a)(3)(C), App. 139.³ ) Thus, for purposes of pension calculation, the rate of pay during an employee's unpaid absence is deemed to be their pay prior to the absence. But does the definition of "absence" extend to time away from work due to disability? The plan is not clear. The lengthy definitions section does not define "absence." (See Plan § 2.01–2.76, App. 131–54 (defining 76 terms, over 23 pages, but providing no definition for "absence").) The plan does define two particular types of absences—absences for temporary family medical leave, and temporary approved absences, (Plan § 2.10, App. 134–35 (defining "Approved Absence"); Plan § 2.10B, App. 135 (defining "Approved Non–HCE Absence")⁴ )—and it references two more types of "absences" in the "Hours of Service" section, which details how much time should be credited in various scenarios. (Plan § 2.40(a)(4), App. 147–48 (listing as examples Approved Absences, temporary lay-offs, military leave, and Approved Non–HCE Absences)⁵ ). A departure from work due to disability is not one of the four examples of "absence" listed. Additionally, a different subsection in the "Hours of Service" section addresses the hours credited during "Total Disability"; that subsection is directly below the "absences" subsection, and does not mention "absences." (Plan § 2.40(a)(5), App. 148.)

More generally, the plan grants the plan administrator the authority "to determine all questions of ... eligibility, ... to make factual determinations, ... to construe and interpret the provisions of the Plan, to correct defects and resolve ambiguities therein, and to supply omissions thereto." (Plan § 13.02(f), App. 242.⁶ ) The plan is funded entirely by Union Pacific; contributions are neither required nor accepted from plan participants. (Plan § 12.01–03, App. 232.⁷ )

During the times relevant here, the plan's designated administrators, including Barbara Schaefer [Schaefer isn't listed as an Appellee], Roy Schroer, and Edwin A. Willis, were also Union Pacific employees or officers. Schaefer and Schroer each held the title of Vice President for Human Resources, and Willis was Assistant Vice President for Compensation and Benefits.

III.

The District Court had jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e). We have jurisdiction under 28 U.S.C. § 1291.

IV.

Federal courts review the decisions of ERISA plan administrators under standards derived from "principles of trust law," in that the plan document itself determines the...